Inventory in transit between your supplier and your business is your pipeline inventory. Although this inventory is not yet in your possession, your business can include it in its total inventory count.
SOS Inventory makes this easy to do. SOS is designed to manage inventory from an unlimited number of locations; simply creating a location for pipeline inventory lets you add it to inventory totals. While the total inventory indicated on your outstanding purchase orders represents part of your total inventory costs, those costs are for merchandise not yet received. Once items are received into inventory, you can generate an Item Receipt in your SOS account.
Not all items on your purchase orders need to be received simultaneously. If only a partial order arrives, you may generate a receipt for only those items. SOS Inventory knows to keep track of the number of items received relative to the number ordered by updating the received column on the purchase order automatically. Once the entire order is in receipt, the purchase order will close out.
SOS Inventory will also track the landed cost of an item which is the complete amount that it costs you to get the item into inventory. In addition to the raw cost of the material, to keep your inventory costs accurate you need to account for other charges involved to delivery those items to you. These can include shipping fees, customs charges, duties, etc. By indicating an overhead percentage to apply to items received, you have a simple way to handle this in SOS.
What is the pipeline inventory formula?
The amount of inventory you order can be determined by multiplying demand rate times lead time.
A pipeline inventory example would be requiring 100 items per week for an item with a two-week lead time. That would give one hundred fifty items of pipeline inventory.
That demand would be translated into purchase orders which can be created either manually or automatically when an item reaches a minimum inventory level. By setting minimum levels, your business can put a safety measure in place to keep new inventory coming in before you go short on the item. That minimum level is your reorder point to trigger purchase orders whenever product is needed.
How Can Pipeline Inventory Be Reduced?
Assuming that demand stays the same, you can reduce pipeline inventory by reducing lead time. That may not be possible with your existing supplier, but a supplier located closer to your business may be able to deliver in a shorter time frame.
What is the Difference Between Pipeline Inventory and Decoupling Inventory?
Decoupling inventory, or safety stock, is set aside from regular inventory but is already in the business’ possession.
The aim behind maintaining extra stock on hand is to have a back-up supply in the event of delivery delays, production problems or surges in demand that use up regular inventory on hand.
Pipeline Inventory Examples
Your pipeline inventory could be raw materials coming from many different locations overseas taking weeks to arrive at port before being delivered to your business.
If you are a retailer, your pipeline inventory is probably finished product coming from a distributor or wholesaler.
In either situation, once the purchase takes place, that inventory becomes part of the buyer’s pipeline inventory.
In today’s challenging circumstances, we’re experiencing more frequent and longer delays in the supply chain. Good communication with those suppliers is key so you are prepared to react to delays. But to minimize shortages and loss of sales, you need to have a game plan to cover longer lead times. Updating your safety stock levels to reflect longer lead times is one such approach. Finding additional suppliers within shorter distances to your location is another. No matter the decision you need to make about your inventory acquisition methods, being equipped with in-depth reporting gives you the information you need to make informed decisions. SOS Inventory offers over fifty different types of reports so you can dive into details about any product from any angle you desire.
SOS Inventory provides a broad range of tools to manage your inventory at any location and track it through its journey, accounting for all types of costs along the way. This functionality gives you the most accurate inventory counts and costs, giving you better reporting, precise bookkeeping and better fodder for important decision making.